As standards and practices regarding labor have evolved through the years, getting an agreement done and a work contract finalized remains essential, to ensure that all the terms are clearly stated and met, as well as the interests of the parties involved are protected.

What is a Labor Contract?

By definition, a labor contract is a legal and important document that establishes the rules and regulations that will oversee the working relationship between the employer and the employee. The contract includes the rights and responsibilities of the parties involved, as well as the things to do if one of the parties fails to fulfill the responsibilities that are stated in the agreed contract. A labor contract also states the specific commitments that the employer is making with the employee. This typically includes a commitment to maintaining an environment that is compliant with safety rules and regulations. A labor contract also refers to any kind of collective bargaining agreement with any labor union, works council, or labor organization.

What Is Typically Included in a Labor Contract?

The contents of a labor contract greatly vary by businesses and companies and the types of labor they offer, but generally speaking, they must consist of the following terms:

Duties to be met. The first things that should be included in a labor contract are the obligations or the responsibilities of both parties. These terms must also be described in full clear detail because an overlooked term or a term that is too open for interpretation can lead to both parties taking extreme liberties and may result in the failure of fulfilling obligations.Length of the contract. The amount of time that the project is expected to be finished or the duration of the employment project must be clearly stated within the labor contract. It can typically include the specific date and time that is agreed upon by the parties involved. Sometimes, labor contracts can consist of multiple projects, so multiple timeframes must be created that are appropriate to each project.Payment. The terms of pay and the amount that is to be given from the employer to the employee must also be stated in the labor contract. Labor contracts must also indicate when the payment must be made. Any form of additional costs must also be stated within the contract. Salary negotiation is the most heavily contested part of the contract.Rights of the Employer/Management. This is a non-negotiable section of the labor contract. This states the right of the management to maintain and operate their business within the respect of the general business decisions of their area. This typically includes matters such as the organizational structure and the executive leadership. All parties involved must respect the right of the management to operate the business within its best interests.Risks. A labor contract should state the risks that come along with the job, for both the employer and the employee, as well as the appropriate risk management actions. Common risks include damage to property, injuries, or any other untoward incidents that can occur. Although both parties usually understand that there is some degree of risk during their work, it must be clearly stated in the contract and in great detail for the purpose of protecting both the employer and employee.Signatures. Once all the parties involved have reached an agreement regarding the terms stated in the labor contract, then they should sign it to prove that they understand it. All parties should have a signed copy of the contract before the actual work can even start. If someone deviates from the agreed terms, a breach of contract happens and the appropriate repercussions will apply to the offending person.

What is the Division of Labor?

The term Division of Labor refers to the segmentation of the tasks, with each individual focusing on a specific part of the production process. Its value in economics lies in the fact that a given number of workers can produce a greater amount of output when this method is implemented compared to the workers that don’t use this method. The increase in production rates is usually attributed to increased learning dexterity and savings in wasted motion during the transition from one type of work to the next one.

What are the Types of Employment Contracts?

The types of employment contracts greatly vary from each employer and where they are located. Here are the most common types:

Permanent Employment Contract – This type of employment contract can also be called a regular employment contract in some areas. This is for employees who work an indefinite period. They are paid a salary and work regular hours. It can apply to full-time or part-time work and may be terminated at the employer or employee’s discretion.Fixed Employment Contract – This type of employment contract has a set end date. In this type of employment, an employer recruits a worker for a set amount of time. A fixed employment contract may have neither the object nor the effect of permanently filling out a spot that relates to the normal, permanent operation of the company. Employees who sign a fixed employment contract still have the same rights as the employees who signed a permanent contract.Casual Employment Contract – This type of employment contract is utilized whenever employees cannot guarantee a fixed working pattern. However, the contract should still state the number of hours that are expected to be completed by the employee per week.Probationary Employment Contract – In this type of employment contract, the employee is subject to a fixed period of observation and evaluation by the company that he/she is working for. The aim of this is to assess the employee’s suitability in working for them on a permanent employment basis.

What are the Advantages and Disadvantages of Contract Labor/Employment?

Contract employment comes with the following advantages and disadvantages:



What are the Sectors of the Labor Industry?

There are many ways to categorize the different kinds of labor work. In economic terms, it can be divided into the following three terms, known as the three-sector model:

Primary Sector. The primary sector of the labor industry is concerned with extracting raw materials or resources from the land or main source. This is also known as the extraction sector for the same reasons. Examples of these kinds of businesses are farming, oil production, fishing, and mining.Secondary Sector. The secondary sector of the labor industry talks about the manufacturing process. This involves taking the raw materials extracted by the businesses belonging to the primary sector and manufacturing them to new, higher-value finished products. Examples of businesses operating in the secondary sector include building companies, food production companies, and car manufacturing companies.Tertiary Sector. The tertiary sector of the labor industry talks about the businesses with the intangible aspect of providing services to various consumers and businesses. For this reason, the tertiary sector is also known as the service sector. It also involves the retail of manufactured goods. Services are defined as the activities that are done by people or businesses for consumers. Examples of businesses operating in the tertiary sector are hairdressers/barbershops, cinemas, banks, and supermarkets.

How to Prepare an Effective Labor Contract

Preparing an effective Labor Contract necessitates the following steps that should be followed:

1. Writing the title

The labor contract needs a title for both parties to be able to know and understand what kind of labor contract it is going to be, whether it is a part-time contract or a full-time contract. It is also important that the title is written legibly and is located in a place where it can be seen clearly.

2. Writing the basic information.

The next step that can be taken in writing a labor contract is including the basic information from the parties involved. It includes the names, the date of the agreement, the start and end date of the project, the location of the project, and the name and the kind of project that the employee will have to work on.

3. Mention the position-related responsibilities.

In this step, the employer should state the responsibilities of the employee that is also related to the type of work that he/she will undergo. This is important to make sure that the worker knows what is expected of them. This includes the role, the title, and the corresponding duties that the worker has to complete throughout the duration of the labor contract. It is important that everything in this step should be written very clearly without room for misinterpretation.

4. Write the financial details.

In this section, details regarding how the worker should be financially compensated are written. This must be also written clearly in order to avoid unnecessary confusion between the employer and the worker. The details regarding the financial compensation should include the amount of compensation, the method of payment whether it is hand-in or bank deposit, the periods in when the worker will be paid, and any other performance-related bonuses.

5. Include details on how disputes and claims are handled.

Many things can happen to the worker while working on the project and some of them may put the worker in a disadvantageous state. For this reason, a labor contract should also include the various ways the employer should properly handle any disputes and claims that they may encounter from the worker. This is also the part of the labor contract that should not be written vaguely and should be done with little to no room for interpretation.

6. Include a signature area and consult with a lawyer.

This area is provided so that the employer and the worker have spaces to sign should they have no further clarifications and the worker is satisfied with the terms to the point that he/she will not renegotiate or contest a part of the contract. Once this is done and the contract is written, it is also essential to have a lawyer or someone with legal and proper authority to review the labor contract that is made. Consulting to a lawyer helps businesses from future litigation and troubles and ensures the protection of both the employer and the worker.


What are the four different types of labor?

There are four different types of labor and are sorted by skill. Here they are:

  1. Unskilled Labor – generally consists of those workers who work primarily with their hands. Workers in unskilled labor have the lowest amount of capital invested towards them and usually receive the lowest wages.
  2. Semi-skilled Labor – Workers in this type of labor have enough mechanical abilities to operate machinery or equipment, such as floor polishers and dishwashers. They also have higher wages compared to workers in unskilled labor.
  3. Skilled Labor – workers in this category can operate more complex equipment, and can perform tasks with minimal supervision. They also receive a higher human capital, resulting in higher wages.
  4. Professional Labor – consists of workers who have the highest level of knowledge-based education and management skills. They are the highest wage earners in this category.

What is the difference between a job offer and an employment contract?

A job offer letter is an unofficial way of presenting candidates with the most basic terms of employment. This is not legally binding. An employment contract includes more detailed terms and conditions that are not included in the job offer and is a legally-binding document. The terms must be agreed upon by both the employee and employer for the contract to be set in motion.

How does contract employment work?

Contract employments are not permanent full-time jobs and employees who work under contract employment do not share the same benefits and compensations compared to those who are permanent workers. Employers of contract workers usually not share the same amount of information to them as they would do to permanent workers.

In making a labor contract, it is important that no vague terms or prohibited clauses are included, such as forbidding the worker the opportunity to join an established labor union in his/her first few days or weeks as an employee. Fortunately, this practice is prohibited anymore. But any potential employee should still watch out for any discrepancies written here. In this article, examples of a proper labor contract are posted for you to download and for your personal use or reference.